Healthcare Realty Trust Inc

Previous wording

This report and other materials the Company has filed or may file with the SEC, as well as information included in oral statements or other written statements made, or to be made, by management of the Company, contain, or will contain, disclosures that are “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “target,” “intend,” “plan,” “estimate,” “project,” “continue,” “should,” “could," "budget" and other comparable terms. These forward-looking statements are based on the Company's current plans, objectives, estimates, expectations and intentions and inherently involve significant risks and uncertainties. Such risks and uncertainties include, among other things, the following: the Company’s expected results may not be achieved; failure to realize the expected benefits of the Merger; risks related to future opportunities and plans for the Company, including the uncertainty of expected future financial performance and results of the Company; the possibility that, if the Company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial analysts or investors, the market price of the Company’s common stock could decline; pandemics or other health crises, such as COVID-19; increases in interest rates; the availability and cost of capital at expected rates; competition for quality assets; negative developments in the operating results or financial condition of the Company's tenants, including, but not limited to, their ability to pay rent; the Company's ability to reposition or sell facilities with profitable results; the Company's ability to release space at similar rates as vacancies occur; the Company's ability to renew expiring leases; government regulations affecting tenants' Medicare and Medicaid reimbursement rates and operational requirements; unanticipated difficulties and/or expenditures relating to future acquisitions and developments; changes in rules or practices governing the Company's financial reporting; the Company may be required under purchase options to sell properties and may not be able to reinvest the proceeds from such sales at rates of return equal to the return received on the properties sold; uninsured or underinsured losses related to casualty or liability; the incurrence of impairment charges on its real estate properties or other assets; other legal and operational matters; and other risks and uncertainties affecting the Company, including those described from time to time under the caption “Risk Factors” and elsewhere in the Company’s filings and reports with the SEC, including the Company's Annual Report on Form 10-K for the year ended December 31, 2023. Moreover, other risks and uncertainties of which the Company is not currently aware may also affect the Company's forward-looking statement…

Excerpt shortened here; the source contains the full paragraph.

Current wording

This report and other materials the Company has filed or may file with the SEC, as well as information included in oral statements or other written statements made, or to be made, by management of the Company, contain, or will contain, disclosures that are “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “target,” “intend,” “plan,” “estimate,” “project,” “continue,” “should,” “could," "budget" and other comparable terms. These forward-looking statements are based on the Company's current plans, objectives, estimates, expectations and intentions and inherently involve significant risks and uncertainties. Such risks and uncertainties include, among other things, the following: the Company’s expected results may not be achieved; failure to realize the expected benefits of the Merger; risks related to future opportunities and plans for the Company, including the uncertainty of expected future financial performance and results of the Company; the possibility that, if the Company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial analysts or investors, the market price of the Company’s common stock could decline; pandemics or other health crises; increases in interest rates; the availability and cost of capital at expected rates; competition for quality assets; negative developments in the operating results or financial condition of the Company's tenants, including, but not limited to, their ability to pay rent; the Company's ability to reposition or sell facilities with profitable results; the Company's ability to release space at similar rates as vacancies occur; the Company's ability to renew expiring leases; government regulations affecting tenants' Medicare and Medicaid reimbursement rates and operational requirements; unanticipated difficulties and/or expenditures relating to future acquisitions and developments; changes in rules or practices governing the Company's financial reporting; the Company may be required under purchase options to sell properties and may not be able to reinvest the proceeds from such sales at rates of return equal to the return received on the properties sold; uninsured or underinsured losses related to casualty or liability; the incurrence of impairment charges on its real estate properties or other assets; other legal and operational matters; and other risks and uncertainties affecting the Company, including those described from time to time under the caption “Risk Factors” and elsewhere in the Company’s filings and reports with the SEC, including the Company's Annual Report on Form 10-K for the year ended December 31, 2023. Moreover, other risks and uncertainties of which the Company is not currently aware may also affect the Company's forward-looking statements and may cause ac…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Cash flows provided by investing activities for the six months ended June 30, 2024 were approximately $151.4 million. Below is a summary of the investing activities.

Current wording

Cash flows provided by investing activities for the nine months ended September 30, 2024 were approximately $482.1 million. Below is a summary of the investing activities.

Previous wording

The Company disposed of or contributed to a joint venture 25 properties during the six months ended June 30, 2024 for a total sales price of $464.9 million, generating cash proceeds of $378.7 million, net of joint venture contributions, including $96.0 million of proceeds that were held in escrow at June 30, 2024. The following table details these dispositions for the six months ended June 30, 2024:

Current wording

The Company disposed of or contributed to joint ventures 41 properties during the nine months ended September 30, 2024, for a total sales price of $851.7 million, generating gross proceeds of $739.2 million, net of joint venture contributions and secured financing. The following table details these dispositions for the nine months ended September 30, 2024:

Previous wording

1 The Company contributed the following medical outpatient properties to a joint venture in which the Company retained 20% ownership: one in each of Raleigh, NC, New York, NY, Philadelphia, PA, Atlanta, GA and Austin, TX; two medical outpatient properties in Los Angeles and four in Seattle, WA. Sale price and square footage reflect the total sale price paid by the joint venture and total square footage of the property.

Current wording

1 The Company contributed the following medical outpatient properties to a joint venture in which the Company retained 20% ownership: one in each of Raleigh, NC, New York, NY, Philadelphia, PA, Atlanta, GA, Austin, TX, Houston, TX, Miami, FL, and Denver, CO; two medical outpatient properties in Los Angeles and five in Seattle, WA. Sale price and square footage reflect the total sale price paid by the joint venture and total square footage of the property.

Previous wording

2 The Company sold seven MOB properties in Greensboro, NC and two MOB properties in Raleigh, NC to a single buyer in a single transaction.

Current wording

2 The Company sold seven medical outpatient properties in Greensboro, NC and two medical outpatient properties in Raleigh, NC to a single buyer in a single transaction.

Previous wording

During the six months ended June 30, 2024, the Company's investment in an unconsolidated joint venture in which it holds a 20% interest increased by $66.5 million relating to the retained ownership from the MOB properties contributed to the joint venture.

Current wording

During the nine months ended September 30, 2024, the Company's investment in two unconsolidated joint ventures in which it holds a 20% interest increased by $89.6 million and $21.3 million, respectively, relating to the Company's contribution of medical outpatient properties to the joint ventures.

Previous wording

During the six months ended June 30, 2024, the Company incurred capital costs totaling $140.7 million for the following:

Current wording

During the nine months ended September 30, 2024, the Company incurred capital costs totaling $223.7 million for the following:

Previous wording

•$44.1 million toward active development and redevelopment of properties;

Current wording

•$76.4 million toward active development and redevelopment of properties;

Previous wording

•$22.3 million toward completed development and redevelopment of properties;

Current wording

•$34.6 million toward completed development and redevelopment of properties;

Previous wording

•$24.4 million toward first generation tenant improvements and planned capital expenditures for acquisitions;

Current wording

•$39.2 million toward first generation tenant improvements and planned capital expenditures for acquisitions;

Previous wording

•$32.0 million toward second generation tenant improvements; and

Current wording

•$48.8 million toward second generation tenant improvements; and

Previous wording

On June 24, 2024, the Company's mezzanine loans totaling $54.1 million in Texas matured. As of the date of these financial statements, the outstanding principal and interest on these loans had not been repaid. On July 15, 2024, the senior lender on the construction loan associated with the underlying project provided notice of foreclosure proceedings to the borrower. The borrower is in negotiations with a third party to provide financing that will repay the senior lender. The Company expects to extend the maturity of the mezzanine loans concurrent with this arrangement.

Current wording

On June 24, 2024, the Company's two mezzanine loans in Texas with a total principal balance of $54.1 million matured. On July 15, 2024, the senior lender on the construction loan associated with the underlying project provided notice of foreclosure proceedings to the borrower. The borrower is in negotiations with a third party to provide financing that will repay the senior lender. In the third quarter of 2024, the Company recorded an allowance for credit loss of $46.8 million to cover the entire carrying amount for these loans. As of the date of these financial statements, the outstanding principal and interest on these loans had not been repaid.

Previous wording

Additionally, during the three months ended June 30, 2024, the Company placed one of its real estate notes receivable with a principal balance of $20.5 million on non-accrual status. The Company determined that the risk of credit loss was no longer remote and recorded a credit loss reserve of $11.2 million.

Current wording

During the second quarter of 2024, the Company placed one of its real estate notes receivable with a principal balance of $31.2 million on non-accrual status. The Company determined that the risk of credit loss was no longer remote and recorded a credit loss reserve of $11.2 million.

Previous wording

Cash flows used in financing activities for the six months ended June 30, 2024 were approximately $379.6 million. See Notes 4 and 7 to the Condensed Consolidated Financial Statements accompanying this report for more information about capital markets and financing activities.

Current wording

Cash flows used in financing activities for the nine months ended September 30, 2024 were approximately $845.3 million. See Notes 4 and 7 to the Condensed Consolidated Financial Statements accompanying this report for more information about capital markets and financing activities.

Previous wording

As of June 30, 2024, the Company had outstanding interest rate derivatives totaling $1.1 billion to hedge the one-month term Secured Overnight Financing Rate ("SOFR"). The following details the amount and rate of each swap (dollars in thousands):

Current wording

As of September 30, 2024, the Company had outstanding interest rate derivatives totaling $1.1 billion to hedge the one-month term Secured Overnight Financing Rate ("SOFR"). The following table details the amount and rate of each swap (dollars in thousands):

Previous wording

In June 2024, the Company repaid $100 million of the $350 million Unsecured Term Loan and exercised its second option to extend the maturity date for one year to July 2025 for a fee of approximately $0.3 million.

Current wording

During the second quarter of 2024, the Company repaid $100 million of the $350 million Unsecured Term Loan and exercised its second option to extend the maturity date for one year to July 2025 for a fee of approximately $0.3 million. During the third quarter of 2024, the Company repaid an additional $150 million of the Unsecured Term Loan. In October 2024, the Company repaid the remaining $100 million outstanding of the Unsecured Term Loan.

Previous wording

The OP has issued unsecured notes described in Note 4 to the Company's Condensed Consolidated Financial Statements included in this report. All unsecured notes are fully and unconditionally guaranteed by the Company, and the OP is 98.6% owned by the Company. Effective January 4, 2021, the Securities and Exchange Commission (the “SEC”) adopted amendments to the financial disclosure requirements which permit subsidiary issuers of obligations guaranteed by the parent to omit separate financial statements if the consolidated financial statements of the parent company have been filed, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and the security is guaranteed fully and unconditionally by the parent.

Current wording

The OP has issued unsecured notes described in Note 4 to the Company's Condensed Consolidated Financial Statements included in this report. All unsecured notes are fully and unconditionally guaranteed by the Company, and the OP is 98.5% owned by the Company. Effective January 4, 2021, the Securities and Exchange Commission (the “SEC”) adopted amendments to the financial disclosure requirements which permit subsidiary issuers of obligations guaranteed by the parent to omit separate financial statements if the consolidated financial statements of the parent company have been filed, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and the security is guaranteed fully and unconditionally by the parent.

Previous wording

Cash flows provided by operating activities decreased from $254.3 million for the six months ended June 30, 2023 to $244.3 million for the six months ended June 30, 2024. Items impacting cash flows from operations include, but are not limited to, cash generated from property operations, interest payments and the timing of the payment of invoices and other expenses.

Current wording

Cash flows provided by operating activities decreased from $372.5 million for the nine months ended September 30, 2023 to $363.6 million for the nine months ended September 30, 2024. Items impacting cash flows from operations include, but are not limited to, cash generated from property operations, interest payments and the timing of the payment of invoices and other expenses.

Previous wording

The Company expects that approximately 15% of its leases will expire each year in the ordinary course of business. There are 793 multi-tenant leases totaling 2.5 million square feet that will expire during the remainder of 2024. Approximately 70.1% of the leases expiring during the remainder of 2024 are for space in buildings located on or adjacent to hospital campuses, are distributed throughout the portfolio, and are not concentrated with any one tenant, health system or market area. The Company typically expects to retain 75% to 90% of tenants upon expiration, and the retention ratio for the first six months of the year was within this range.

Current wording

The Company expects that approximately 15% of its leases will expire each year in the ordinary course of business. There are 418 multi-tenant and single-tenant leases totaling 1.4 million square feet that will expire during the remainder of 2024. Approximately 69.7% of the leases expiring during the remainder of 2024 are for space in buildings located on or adjacent to hospital campuses, are distributed throughout the portfolio, and are not concentrated with any one tenant, health system or market area. The Company typically expects to retain 75% to 90% of tenants upon expiration, and the retention ratio for the first nine months of the year was within this range.

Previous wording

The Company historically has experienced increases in property taxes throughout its portfolio as a result of increasing assessments and tax rates levied across the country. The Company continues its efforts to appeal property tax increases and manage the impact of the increases. In addition, the Company historically has incurred variability in portfolio utilities expense based on seasonality, with the first and third quarters usually reflecting greater amounts. The effects of these operating expense increases are mitigated in leases that have provisions for operating expense reimbursement. As of June 30, 2024, leases for approximately 92% of the Company's total leased square footage allow for some recovery of operating expenses, with approxima tely 28% having modified gross lease structures and approxima tely 64% having net lease structures.

Current wording

The Company historically has experienced increases in property taxes throughout its portfolio as a result of increasing assessments and tax rates levied across the country. The Company continues its efforts to appeal property tax increases and manage the impact of the increases. In addition, the Company historically has incurred variability in portfolio utilities expense based on seasonality, with the first and third quarters usually reflecting greater amounts. The effects of these operating expense increases are mitigated in leases that have provisions for operating expense reimbursement. As of September 30, 2024, leases for approximately 92% of the Company's total leased square footage allow for some recovery of operating expenses, with approximately 29% having modified gross lease structures and approximately 63% having net lease structures.

Previous wording

1 Includes three properties totaling $45.4 million with stated purchase prices or prices based on fixed capitalization rates.

Current wording

1 Includes three properties totaling$45.4 million with stated purchase prices or prices based on fixed capitalization rates.

Previous wording

2 These purchase options have been exercisable for an average of 14.4 years.

Current wording

2 These purchase options have been exercisable for an average of 14.7 years.

Previous wording

3 Includes two medical office buildings that are recorded in the line item Investment in financing receivable, net on the Company's Condensed Consolidated Balance Sheets.

Current wording

3 Includes two medical outpatient properties that are recorded in the line item Investment in financing receivable, net on the Company's Condensed Consolidated Balance Sheets.

Previous wording

The table below reconciles net income to FFO, Normalized FFO and FAD for the three and six months ended June 30, 2024 and 2023:

Current wording

The table below reconciles net income to FFO, Normalized FFO and FAD for the three and nine months ended September 30, 2024 and 2023:

Previous wording

2 For the three and six months ended June 30, 2024, includes a $4.9 million gain on sale of corporate assets included in "Gains on sales of real estate and other assets" on the Statement of Operations, a $2.2 million straight line rent reversed included in "Rental income" on the Statement of Operations, and a $11.2 million credit loss reserve on a note receivable included in "Impairment of real estate properties and credit loss reserves" on the Statement of Operations. For the six months ended June 30, 2023, includes a $5.2 million credit allowance for a mezzanine loan included in "Impairment of real estate properties and credit loss reserves" on the Statement of Operations and $3.4 million reserve included in “Rental Income” on the Statement of Operations for previously deferred rent and straight line rent for three skilled nursing facilities.

Current wording

2 For the nine months ended September 30, 2024, includes a $5.1 million gain on sale of corporate assets included in "Gains on sales of real estate and other assets" on the Statement of Operations, a $2.2 million straight line rent reversed included in "Rental income" on the Statement of Operations, and a $58.0 million credit loss reserve on three notes receivable included in "Impairment of real estate properties and credit loss reserves" on the Statement of Operations. For the nine months ended September 30, 2023, includes a $5.2 million credit allowance for a mezzanine loan included in "Impairment of real estate properties and credit loss reserves" on the Statement of Operations and $3.4 million reserve included in “Rental Income” on the Statement of Operations for previously deferred rent and straight line rent for three skilled nursing facilities.

Previous wording

6 The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 420,687 and 442,263, respectively, for the three months ended June 30, 2024 and 2023, and the dilutive impact of 3,657,682 and 3,669,454 OP units outstanding for the three and six months ended June 30, 2024, respectively.

Current wording

6 The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 760,552 and 432,597, respectively, for the three months ended September 30, 2024 and 2023, and the dilutive impact of 3,649,637 and 3,662,800 OP units outstanding for the three and nine months ended September 30, 2024, respectively.

Previous wording

The following table reflects the Company's Same Store Cash NOI for the six months ended June 30, 2024 and 2023:

Current wording

The following table reflects the Company's Same Store Cash NOI for the nine months ended September 30, 2024 and 2023:

Previous wording

The following tables reconcile net loss to Same Store NOI and the same store property metrics to the total owned real estate portfolio for the six months ended June 30, 2024 and 2023:

Current wording

The following tables reconcile net loss to Same Store NOI and the same store property metrics to the total owned real estate portfolio for the nine months ended September 30, 2024 and 2023:

Previous wording

Rental income decreased $21.5 million, or 6.5%, for the three months ended June 30, 2024 compared to the prior year period. This decrease is primarily comprised of the following:

Current wording

Rental income decreased $26.8 million, or 8.1%, for the three months ended September 30, 2024 compared to the prior year period. This decrease is primarily comprised of the following:

Previous wording

•Leasing activity, including contractual rent increases, contributed $2.5 million.

Current wording

•Leasing activity, including contractual rent increases, resulted in an increase of $3.1 million.

Previous wording

◦Maintenance and repair expense of $1.1 million;

Current wording

◦Maintenance and repair expense of $0.7 million;

Previous wording

•Decrease in travel expense of $0.5 million.

Current wording

◦Compensation expense of $0.5 million; and

Previous wording

General and administrative expenses decreased approximately $1.5 million, or 9.5%, for the three months ended June 30, 2024 compared to the prior year period primarily as a result of the following activity:

Current wording

General and administrative expenses increased approximately $6.7 million, or 50.2%, for the three months ended September 30, 2024 compared to the prior year period primarily as a result of the following activity:

Previous wording

•Acquisitions in 2023 resulted in an increase of $0.1 million.

Current wording

◦Cash incentive compensation expense of $0.1 million.

Previous wording

•Other decreases including legal and other administrative costs of $1.1 million.

Current wording

◦Legal and other administrative costs of $0.2 million.

Previous wording

•Decrease in payroll and payroll related expenses of approximately $1.7 million.

Current wording

◦Payroll and payroll related expenses of approximately $0.7 million.

Previous wording

•Various building and tenant improvement expenditures resulted in an increase of $11.6 million.

Current wording

•Various building and tenant improvement expenditures resulted in an increase of $9.9 million.

Previous wording

•Assets that became fully depreciated resulted in a decrease of $10.0 million.

Current wording

•Assets that became fully depreciated resulted in a decrease of $16.6 million.

Previous wording

In the second quarter of 2024, the Company recognized gains on sale of real estate properties and other assets of approximately $38.3 million. In the second quarter of 2023, the Company recognized gains on sale of real estate properties of approximately $7.2 million.

Current wording

In the third quarter of 2024, the Company recognized gains on sale of real estate properties and other assets of approximately $39.3 million. In the third quarter of 2023, the Company recognized gains on sale of real estate properties of approximately $48.8 million.

Previous wording

Interest expense decreased $2.9 million, or 4.4%, for the three months ended June 30, 2024 compared to the prior year period. The components of interest expense are as follows:

Current wording

Interest expense decreased $5.7 million, or 8.5%, for the three months ended September 30, 2024 compared to the prior year period. The components of interest expense are as follows: